Huntington Ingalls Industries, Inc. (HII) Bundle
Understanding Huntington Ingalls Industries, Inc. (HII) Revenue Streams
Understanding Huntington Ingalls Industries, Inc. Revenue Streams
Huntington Ingalls Industries, Inc. generates revenue through multiple segments, primarily divided into three key areas: Ingalls, Newport News, and Mission Technologies. Each segment has distinct revenue sources, contributing to the overall financial performance of the company.
Revenue Breakdown by Segment
| Segment | Three Months Ended September 30, 2024 (in millions) | Three Months Ended September 30, 2023 (in millions) | Year-over-Year Change (in millions) | Year-over-Year Percentage Change |
|---|---|---|---|---|
| Ingalls | $664 | $711 | $(47) | (7%) |
| Newport News | $1,412 | $1,453 | $(41) | (3%) |
| Mission Technologies | $709 | $685 | $24 | 4% |
| Total Revenue | $2,749 | $2,816 | $(67) | (2%) |
For the nine months ended September 30, 2024, the revenue figures were as follows:
| Segment | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) | Year-over-Year Change (in millions) | Year-over-Year Percentage Change |
|---|---|---|---|---|
| Ingalls | $2,031 | $1,952 | $79 | 4% |
| Newport News | $4,381 | $4,468 | $(87) | (2%) |
| Mission Technologies | $2,224 | $1,954 | $270 | 14% |
| Total Revenue | $8,531 | $8,277 | $254 | 3% |
Year-over-Year Revenue Growth Rates
The year-over-year revenue growth rates indicate varying performance across the segments. While Ingalls and Newport News experienced declines in the three-month period, Mission Technologies showed growth. For the nine-month comparison, Ingalls and Mission Technologies reported increases, while Newport News saw a slight decrease.
Contribution of Business Segments to Overall Revenue
In the three months ended September 30, 2024, the contributions to total revenue were:
- Ingalls: 24%
- Newport News: 51%
- Mission Technologies: 26%
In the nine months ended September 30, 2024, the contributions remained consistent:
- Ingalls: 24%
- Newport News: 51%
- Mission Technologies: 26%
Analysis of Significant Changes in Revenue Streams
The revenue analysis indicates significant changes primarily driven by operational performance and contract adjustments. Ingalls faced a decline due to lower volumes in amphibious assault ships, while Newport News reported decreased revenues due to cumulative catch-up adjustments on the Virginia class submarine program. Conversely, Mission Technologies saw an increase in revenue, attributed to higher service volumes in C5ISR and CEW&S.
Overall, the total backlog as of September 30, 2024, stood at $49.4 billion, reflecting strong future revenue potential across all segments.
A Deep Dive into Huntington Ingalls Industries, Inc. (HII) Profitability
A Deep Dive into Huntington Ingalls Industries, Inc.'s Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was 19.4%, compared to 19.1% for the same period in 2023.
Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was 5.0%, down from 5.6% in the same period of 2023.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, stood at 5.0%, reflecting an increase from 4.9% in the same period of 2023.
Trends in Profitability Over Time
Over the last three years, the gross profit margin has shown a steady increase, with the following values:
- 2022: 18.5%
- 2023: 19.1%
- 2024: 19.4%
The operating profit margin exhibited a decline from 5.6% in 2023 to 5.0% in 2024, indicating challenges in operational efficiency.
Comparison of Profitability Ratios with Industry Averages
The average profitability ratios for the defense industry are:
- Gross Profit Margin: 20.0%
- Operating Profit Margin: 6.0%
- Net Profit Margin: 5.5%
Compared to these averages, the company’s profitability ratios indicate a competitive position, particularly in gross profit margin, although there is room for improvement in operating profit margin.
Analysis of Operational Efficiency
Cost Management: The cost of sales for the nine months ended September 30, 2024, was $6.8 billion, compared to $6.3 billion for the same period in 2023, reflecting a 8% increase in costs.
Gross Margin Trends: The gross margin for the three months ended September 30, 2024, was 19.4%, a slight decrease from 20.1% in the same period of 2023.
| Metric | 2022 | 2023 | 2024 |
|---|---|---|---|
| Gross Profit Margin | 18.5% | 19.1% | 19.4% |
| Operating Profit Margin | 5.8% | 5.6% | 5.0% |
| Net Profit Margin | 4.8% | 4.9% | 5.0% |
In summary, while gross profit margins are improving, the company faces challenges in managing operational costs effectively, leading to a decline in operating profit margins.
Debt vs. Equity: How Huntington Ingalls Industries, Inc. (HII) Finances Its Growth
Debt vs. Equity: How Huntington Ingalls Industries, Inc. Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, the company reported total liabilities of $6,879 million, which includes both short-term and long-term debt. The current portion of short-term debt and the current portion of long-term debt was $898 million, while the total long-term debt stood at $1,709 million.
Debt-to-Equity Ratio
The debt-to-equity ratio, a critical measure for assessing financial leverage, was calculated as follows:
- Total Debt: $2,607 million (short-term + long-term)
- Total Equity: $4,203 million
- Debt-to-Equity Ratio: 0.62
This ratio indicates a balanced approach to financing, with the company maintaining a lower leverage compared to the industry average of approximately 1.0.
Recent Debt Issuances and Credit Ratings
In September 2024, the company amended and restated its existing $1.5 billion credit facility, increasing the capacity to $1.7 billion and extending the maturity by five years. The facility has a variable interest rate based on the Secured Overnight Financing Rate (SOFR) plus an interest spread that ranges from 1.225% to 2.100% depending on the company's credit rating.
As of September 30, 2024, the company maintained a credit rating that allowed for a spread of 1.475% on drawn amounts.
Debt Financing vs. Equity Funding
The company has historically utilized a mix of debt and equity to finance its operations and growth. The recent increase in the commercial paper program from $1 billion to $1.7 billion demonstrates a strategic focus on enhancing liquidity through debt.
In terms of equity, the company reported retained earnings of $5,026 million as of September 30, 2024, reflecting its ability to reinvest profits back into the business.
| Financial Metric | Value |
|---|---|
| Total Debt | $2,607 million |
| Total Equity | $4,203 million |
| Debt-to-Equity Ratio | 0.62 |
| Current Portion of Debt | $898 million |
| Long-term Debt | $1,709 million |
| Credit Facility Capacity | $1.7 billion |
| Credit Rating Spread (drawn amounts) | 1.475% |
Overall, the company maintains a strategic balance between debt and equity, leveraging both to support its operational needs and growth initiatives.
Assessing Huntington Ingalls Industries, Inc. (HII) Liquidity
Assessing Huntington Ingalls Industries, Inc. Liquidity
Current Ratio: As of September 30, 2024, the current ratio was 0.79, reflecting current assets of $2,629 million and current liabilities of $3,336 million.
Quick Ratio: The quick ratio, which excludes inventory from current assets, was approximately 0.76, calculated using cash and cash equivalents of $10 million, accounts receivable of $436 million, and contract assets of $1,714 million.
Working Capital Trends: Working capital decreased from $848 million as of December 31, 2023, to ($707 million) as of September 30, 2024, indicating a shift towards a negative working capital position driven by increased short-term debt and current liabilities.
| Period | Current Assets ($ million) | Current Liabilities ($ million) | Working Capital ($ million) |
|---|---|---|---|
| September 30, 2024 | 2,629 | 3,336 | (707) |
| December 31, 2023 | 2,880 | 3,032 | 848 |
Cash Flow Overview:
- Operating Cash Flow: For the nine months ended September 30, 2024, cash provided by operating activities was $2 million, a significant decline from $408 million in the same period of 2023.
- Investing Cash Flow: Cash used in investing activities rose to $238 million in 2024 from $111 million in 2023, driven by increased capital expenditures.
- Financing Cash Flow: Cash used in financing activities decreased to $184 million in 2024 compared to $655 million in 2023, due to increased proceeds from the commercial paper program.
| Cash Flow Category | 2024 ($ million) | 2023 ($ million) |
|---|---|---|
| Operating Activities | 2 | 408 |
| Investing Activities | (238) | (111) |
| Financing Activities | (184) | (655) |
Potential Liquidity Concerns: The company faces potential liquidity challenges due to negative working capital and declining operating cash flow. The reliance on short-term financing mechanisms, such as commercial paper, raises concerns about the sustainability of liquidity levels moving forward.
Strengths: Despite liquidity concerns, the company has maintained a robust backlog of $49.4 billion as of September 30, 2024, which provides a cushion for future cash inflows and operational stability.
Is Huntington Ingalls Industries, Inc. (HII) Overvalued or Undervalued?
Valuation Analysis
The valuation of a company can be assessed through various financial metrics such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios. Here’s a comprehensive look at these metrics for the company under review.
Price-to-Earnings (P/E) Ratio
The P/E ratio is calculated by dividing the current share price by the earnings per share (EPS). As of the latest data, the stock price is $170.00 and the diluted EPS for the trailing twelve months (TTM) is $10.81. Thus, the P/E ratio is:
P/E Ratio = Stock Price / EPS = $170.00 / $10.81 = 15.72
Price-to-Book (P/B) Ratio
The P/B ratio is determined by dividing the stock price by the book value per share. The book value per share is calculated as total equity divided by the number of outstanding shares. With total equity of $4.203 billion and 39.129 million shares outstanding, the book value per share is:
Book Value per Share = Total Equity / Outstanding Shares = $4,203 million / 39.129 million = $107.00
Thus, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $170.00 / $107.00 = 1.59
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
This ratio provides insight into the company’s valuation relative to its earnings before interest, taxes, depreciation, and amortization. The enterprise value (EV) is calculated as market capitalization plus total debt minus cash and cash equivalents. As of September 30, 2024, the total debt stands at $1.709 billion, and cash is $10 million. Therefore, the EV is:
EV = Market Cap + Total Debt - Cash = ($170.00 39.129 million) + $1.709 billion - $10 million = $7.798 billion
Assuming an EBITDA of $470 million (latest operating income), the EV/EBITDA ratio is:
EV/EBITDA = EV / EBITDA = $7.798 billion / $470 million = 16.60
Stock Price Trends
Over the last 12 months, the stock price has shown a trend as follows:
| Date | Stock Price |
|---|---|
| September 2023 | $160.00 |
| December 2023 | $165.00 |
| March 2024 | $175.00 |
| June 2024 | $180.00 |
| September 2024 | $170.00 |
Dividend Yield and Payout Ratios
The company declared a dividend of $1.30 per share for the latest quarter. With the current stock price at $170.00, the dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = $5.20 / $170.00 = 3.06%
The payout ratio, calculated as dividends declared divided by net earnings, is:
Payout Ratio = Dividends / Net Earnings = $52 million / $427 million = 12.16%
Analyst Consensus
Analyst consensus on the stock valuation indicates a rating of Hold from most analysts, reflecting a cautious outlook based on current valuations compared to historical performance and market conditions.
Summary of Key Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | 15.72 |
| P/B Ratio | 1.59 |
| EV/EBITDA | 16.60 |
| Dividend Yield | 3.06% |
| Payout Ratio | 12.16% |
| Analyst Consensus | Hold |
Key Risks Facing Huntington Ingalls Industries, Inc. (HII)
Key Risks Facing Huntington Ingalls Industries, Inc.
The financial health of the company is influenced by various internal and external risk factors. These include competition within the defense contracting industry, regulatory changes, and market conditions.
Industry Competition
In the defense contracting sector, competition remains intense. Major competitors include General Dynamics, Lockheed Martin, and Northrop Grumman. The company reported a total backlog of $49.4 billion as of September 30, 2024, up from $48.1 billion at the end of 2023, indicating a robust order pipeline but also the necessity to secure contracts against formidable rivals.
Regulatory Changes
Changes in government regulations can significantly impact operations. The U.S. Government has the authority to withhold payments if deficiencies in the contractor’s business systems are identified. As of September 30, 2024, the cumulative amounts of payments withheld were not material to liquidity or cash flows.
Market Conditions
Market conditions are influenced by government budgetary constraints and shifts in defense spending priorities. For instance, the company faced a 3% decrease in sales and service revenues for the three months ended September 30, 2024, compared to 2023, attributed to lower volumes in naval nuclear support services and cumulative catch-up adjustments.
Operational Risks
Operational risks include challenges in estimating contract costs and executing contracts efficiently. For the nine months ended September 30, 2024, the company reported a decrease in segment operating income of 48% compared to the same period in 2023, driven by lower performance on key contracts.
Financial Risks
Financial risks encompass fluctuations in interest rates and credit availability. The interest expense for the three months ended September 30, 2024, was $23 million, compared to $22 million for the same period in 2023. Additionally, the company’s free cash flow decreased by $495 million from the previous year, primarily due to unfavorable changes in trade working capital.
Strategic Risks
Strategic risks arise from the company’s long-term contracts with the U.S. Government, which are subject to revisions and modifications. For the three months ended September 30, 2024, cumulative catch-up revenue adjustments included unfavorable adjustments totaling $72 million.
Mitigation Strategies
The company employs various strategies to mitigate these risks, including maintaining a diverse contract portfolio and actively managing its backlog. As of September 30, 2024, the funded backlog was $27.7 billion, indicating a solid foundation for future revenues.
| Risk Factor | Description | Current Impact |
|---|---|---|
| Industry Competition | Intense competition from major defense contractors | Total backlog: $49.4 billion |
| Regulatory Changes | Possible withholding of payments by the U.S. Government | Payments withheld: Not material |
| Market Conditions | Government budgetary constraints affecting revenue | Revenue decrease: 3% |
| Operational Risks | Challenges in executing contracts effectively | Operating income decrease: 48% |
| Financial Risks | Fluctuations in interest rates | Interest expense: $23 million |
| Strategic Risks | Risks associated with long-term contracts | Cumulative adjustments: $72 million |
Future Growth Prospects for Huntington Ingalls Industries, Inc. (HII)
Future Growth Prospects for Huntington Ingalls Industries, Inc.
Analysis of Key Growth Drivers
Huntington Ingalls Industries, Inc. is poised for growth driven by several key factors:
- Product Innovations: The company is focusing on advancements in naval shipbuilding, particularly through the Columbia-class submarine program, which is expected to enhance its product offerings.
- Market Expansions: Expansion into unmanned systems and increased capabilities in cybersecurity and digital warfare through its Mission Technologies segment.
- Acquisitions: The company actively seeks strategic acquisitions to bolster its technological capabilities and market presence.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, Huntington Ingalls Industries anticipates approximately 22% of its backlog to be converted into sales. As of September 30, 2024, the total backlog stood at $49.4 billion, an increase from $48.1 billion at year-end 2023. The company reported that new contract awards during the nine months ended September 30, 2024, were valued at $9.8 billion.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company has engaged in various strategic initiatives, including:
- Partnerships with the U.S. Government: As a primary contractor for naval shipbuilding, its relationship with the government remains a vital growth driver.
- Joint Ventures: Collaborations in various sectors, such as environmental and nuclear, enhance operational capabilities and market reach.
Competitive Advantages That Position the Company for Growth
Huntington Ingalls Industries maintains several competitive advantages:
- Strong Backlog: A robust backlog of $49.4 billion provides a solid foundation for future revenue.
- Expertise in Shipbuilding: Extensive experience and expertise in complex naval shipbuilding projects create high entry barriers for competitors.
- Government Contracts: A significant portion of revenue is derived from government contracts, ensuring steady cash flow and reduced market volatility.
| Segment | Funded Backlog ($ millions) | Unfunded Backlog ($ millions) | Total Backlog ($ millions) |
|---|---|---|---|
| Ingalls | 14,143 | 2,244 | 16,387 |
| Newport News | 11,636 | 15,627 | 27,263 |
| Mission Technologies | 1,887 | 3,882 | 5,769 |
| Total | 27,666 | 21,753 | 49,419 |
As of September 30, 2024, the company expects approximately 30% of its remaining performance obligations to be recognized as revenue through 2025.
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Article updated on 8 Nov 2024
Resources:
- Huntington Ingalls Industries, Inc. (HII) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Huntington Ingalls Industries, Inc. (HII)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Huntington Ingalls Industries, Inc. (HII)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.